What explains this poor record on productivity? It is not that leading British
firms are less productive than their competitors overseas. It is that we have
a ‘long tail’ of low-productivity firms.77 As figure 3.4 shows, the UK has a small
proportion of businesses with high productivity, of over £100,000 per worker; and
a very much larger number earning under £50,000 per worker. This dispersion
is considerably greater in the UK than in other OECD countries.78 The ‘long tail’
of low-productivity businesses is particularly marked geographically. There are
high- and low-productivity firms in every area of the country; but on average
productivity is much higher in London and the South East than elsewhere (see
figure 3.5). This is partly because of the different sectors that predominate
in different regional economies, but it is not explained by it: there is wide
geographical divergence in productivity even between firms in the same sectors.
Declare unilateral free trade. That is what increases firm level productivity.
In fact, the productivity position is worse than this. Since the financial crisis,
productivity growth in the UK has more or less stalled altogether. This is a stark
divergence from the long-running trend (see figure 3.3), and it has occurred across
almost all sectors.76 It goes a long way to explaining the stagnation of earnings
over the past decade.
If GDP goes down by 10% should all wages fall by 10% or 10% lose all their wages? Britain’s flexible labour market meant this time around the first happened. Anybody capable of thought would consider this a success.
Poverty cuts life expectancy: in the poorest areas of Britain, people on average
have eight years’ less life than those living in the richest areas.
Ill health can and does cause poverty. And further, people do tend to migrate when economic circumstances change.
The result is that the UK remains among the most unequal of western European
countries. The difference in income between the top 10 per cent and the bottom
10 per cent of households is five-fold in Denmark, seven-fold in France and
Germany and 11-fold in Britain (see figure 2.14).
The UK is regionally unequal.
Prices also vary regionally, meaning that consumption inequality is very much lower.
The pre-tax, pre-benefit incomes of the poorest half of the population have barely
benefitted from overall economic growth
Share (%) of the growth in real original household incomes* among economically
active households between 1979 and 2012, by income decile
Why measure pre tax and pre benefits?
Well, obviously, because you wish to commit Worstall’s Fallacy.
It used to be the case that having a job kept people out of poverty. But the rise
in low paid work means that this is no longer the case. Indeed, it is a striking fact
that, after taking housing costs into account, more people in poverty now live in
working households (54 per cent) than non-working households (46 per cent).50
Overall, 14 million people (22 per cent of the population) now live on incomes
below the official poverty line after housing costs; this includes 4 million children,
or nearly one in three.51 Over the last decade child poverty has fallen by just 3 per
cent, compared with 21 per cent in the previous decade,52 and it is now projected
to start rising again
You are talking about relative poverty. Which always will rise as inequality does. And yes, we do know we’ve got rising inequality.
Partly as a result of these changed patterns of employment, the prevalence of
low-paid work in the British economy has risen (see figure 2.11). Although the
national minimum wage has been rising in real terms (now £7.50 per hour for
workers over the age of 25, and between £3.50 and £7.05 for those under 25), the
proportion of the workforce on or around this wage level is higher than 10 years
ago, and there are more workers now earning below the national living wage.
What in buggery did you expect? Push the minimum wage up faster than average wages are growing and a larger portion of the workforce will be on the minimum wage. Are these people really too dim to grasp that? As to the living wage, that’s risen even faster, hasn’t it? Thus the portion will also be larger.
This most recent period follows a much longer one in which the share of national
income going to labour (that is, to wages and salaries rather than as returns to
capital) has been in decline. Figure 2.6 shows a very striking pattern: a rising share
of national income going to labour from the second world war to the mid-1970s,
and then a falling one until the financial crisis.28 This is a trend observed in most
developed countries: it suggests a major shift in how modern economies both
generate growth and distribute its rewards
There aren’t two shares to the economy, there are four. And it ain’t the capital share that has been rising, it’s the other two, not labour.
The partnership economy
By 2030, we want the economy to be guided by a new social partnership: between
responsible businesses, a smart and accountable state, strong trade unions and a
vibrant civil society. In 2030, most successful businesses will recognise that they
have obligations to their employees, stakeholders and communities, and not just
to their shareholders. The focus on short-term ‘shareholder value’ will have been
replaced by a commitment to investment and long-term success. Employers and
employees will acknowledge their mutual responsibilities, where the recognition
of workers’ rights, voice and creativity is rewarded by greater productivity and
pride in work. The public are no longer considered solely as passive ‘consumers’
but rather as ‘economic citizens’ endowed with rights to share in ownership and
public decision-making, meaningful opportunities to create their own businesses,
and responsibilities to contribute to the economy’s success. As a result, the UK
has one of the widest range of business forms in the world, including socially
owned, mutual and cooperative enterprises of various kinds.
If all of this did make businesses more productive then businesses organised in this manner would already have outcompeted those that are not so organised.
They haven’t – so, what’s wrong with the idea then?
Across both industry and households, we will have pioneered the
shift to a more ‘circular’ economy, where resources are stewarded throughout their
life, wastes tend to zero and resource productivity is maximised.
Acres of this report insist that labour productivity must rise. Rightly so of course. They then want everyone recycling, spending their time for free on something unproductive. This does not raise productivity.
The just economy
By 2030, we want Britain to have a fairer distribution of economic rewards. A larger
proportion of national income will go into wages and salaries, with an increased
share for those in the bottom half of the income distribution. Both income and
wealth inequalities will have been reduced.
Capital share of the economy is around long term averages.
Mixed income (self employed essentially) is well above average. Tax on consumption and subsidies to production is well above average – that’s the effect of VAT rates rising.
Labour share, the fourth bit, is down, yes. So, we’re to have policies to reduce VAT and self employed earnings are we?
By 2030, we want a new industrial strategy – to be nationally diversified and
regionally distinctive – to have succeeded. There will be centres of technological and
industrial excellence in every nation and region of the country, with our strengths in
services complemented by a renaissance in manufacturing.
There hasn’t even been a shrinkage in manufacturing. Output is up at or about record levels. It’s employment in the sector which has fallen, plus services have grown faster.
And, of course, comparative advantage. If the Germans are better at it than we are then let them do it.
we should be producing as many engineers as Germany and as many data scientists
Why? Haven’t these idiots heard of comparative advantage yet?
The appalling disaster of Grenfell Tower – a deeply political tragedy – has further
crystallised a sense that the fabric of British society has been torn. It is hard not
to see Grenfell as a hideous monument to inequalities of wealth and power; to the
sense that the British state – whether national or local – simply did not care for
its citizens because they were poor, and had prioritised the drive for deregulation
above human safety.
That poor people and immigrants gain subsidised, in fact for some free, housing in the most expensive part of the country is a hideous monument to inequality?
reform of the tax system, to make it fairer, smarter and simpler
• measures to spread wealth more fairly, including better taxation, new
approaches to housing and widening the ownership of firms.
Fairer, smarter, simpler, seems to mean taxing the rich more.
We have experimented with bold monetary policy, but are constrained by
pre-Keynesian fiscal orthodoxy. Since the financial crisis, the UK economy has
been supported by extremely low interest rates and a major programme of
‘quantitative easing’ (unconventional money creation) by the Bank of England.
Fiscal austerity – public spending reductions and tax rises – has left the UK’s
recovery in this period slower than almost all of our major competitors. Growth is
now being fuelled again by consumer spending, based on rising debt and falling
savings. With monetary policy having little further scope to deal with a slowdown,
there is a strong case for increased public investment now to drive demand.
It was actually Keynes who described that paradox of thrift. When in a recessionary hole you want people to save less of their income, spend more of it, in order to climb back out of the hole. That’s actually Keynes’ own damn argument.
The UK is the most geographically unbalanced economy in Europe. Almost
40 per cent of UK output is produced in London and the South East, and only
those regions have recovered to pre-2008 levels. Median incomes in the North
West, South West and West Midlands are now more than 30 per cent lower
than in London and the South East; in Wales, 35 per cent; in Scotland 22 per
cent. For people in deindustrialised areas and declining communities, there
has been little sign of economic recovery.
• The UK’s high employment rate has been accompanied by an increasingly
insecure and ‘casualised’ labour market. Fifteen per cent of the workforce
are now self-employed, with an increasing proportion in ‘enforced selfemployment’
driven by businesses seeking to avoid employer responsibilities.
Six per cent are on short-term contracts, and almost 3 per cent are on zerohours
contracts. More workers are on low pay than 10 years ago. Insecure and
low-paid employment is increasing physical and mental ill-health.
• The UK economy distributes rewards very unequally. Between 1979 and 2012,
only 10 per cent of overall income growth went to the bottom half of the
income distribution, with almost 40 per cent going to the richest tenth of
households. Although these households’ incomes have fallen slightly since the
financial crisis, the UK remains among the most unequal of western European
countries. Nearly a third of children – four million – live in poverty, and this
figure is now rising again.
But note how they don’t manage to put the two things together. If you have a regionally imbalanced economy then relative poverty across the nation will indeed be higher than in places with less regional imbalance. Absolute poverty might be, might not be, but relative will be. Rather less so when we measure consumption of course given different prices across the regions.
But why is this a problem? London is part of the global economy, the rest of the place a middling N European one. Sure, we could drag London down and thereby have less relative poverty. Or perhaps everyone should be doing what London is, trading with that great global economy?
Capitalism in Britain is broken and needs urgent reform because it is leaving young people worse off than their parents, the Archbishop of Canterbury has said.
But then a belief in consubstantiation is a requirement for that particular job, isn’t it?
The belief that the young are worse off than their parents is equally untrue. It’s bollocks quite frankly. A result of gussied up statistics and a refusal to look at consumption, the only economic outcome that actually matters.
Just one teenie example. Someone in their 20s today, their parents would have been born in the 60s. We have the concept today of fuel poverty, can you heat the whole house to a certain temperature on less than 10% of income? If not, you’re in fuel poverty. In the 1960s, being unable to heat a house in that manner was called “normal.”
And then there’s the manner in which CPI overstates inflation – makes a hell of a difference some 1% a year over 40 years.
Teachers are more than £5,000 a year worse off on average in real terms than in 2010 – according to analysis of official data showing the effect of years of pay restraint on the profession.
Pay hasn’t risen with inflation.
As I pointed out about public sector pay in general, private sector pay hasn’t either. That’s what a recession is, too, when wages go down in real terms.
When Valerie Cappell and her family decided to build their dream home, they determined “to do the right thing” by making it as ecologically-friendly as possible.
But the “Grand Designs-esq” adventure turned into a nightmare when she discovered the highly sustainable wool she had chosen to insulate the four-bed property was hosting a moth infestation of “biblical proportions”.
Despite being reassured that treating the organic substance with pyrethrin would be sufficient to ward off insect invaders, she had to rip apart swathes of the wave-shaped house.
Having consulted experts and sent portions of the infested wool for laboratory analysis, the biologist has now been told by Rentokil that her traumatic experience is shared by many others who opt for organic insulation.
“It was soul-destroying and incredibly stressful when we couldn’t work out where all the moths were coming from,” she told The Telegraph.
“I think our situation could be the tip of an iceberg – many more people must have installed this kind of insulation.”
As with many another new solution to an old problem, say, how shall we organise the economy then? We need to consider a derivative of Chesterton’s Fence. Why didn’t people do it this way before?